China and Foreign Business
Main Contributor: Julia Zanetti
Group Leader: Louis-Claude Perrault-Carré
Overview of the Topic:
The hurdles of doing business in China, for a long time, have centered on the corruption of officials, the excessive use of red tape, and the overregulation of business affairs.[i] In addition, a long-standing concern for foreign investors in China has been the difficult licensing process and the virtually non-existent intellectual property rights. Companies wanting to invest and do business in China have always been aware of such traditional difficulties, but have been largely drawn in by the appeal of China’s low-cost labour and large market.
Today, the nature of foreign business in China has taken on a new character – Chinese regulatory bodies conducting large-scale antitrust/anti-monopoly investigations revolving around the activities of foreign businesses.[ii] The American Chamber of Commerce in China has released a report on foreign companies’ attitudes and found that 60% of companies declare that China has become a less welcoming place to do business, up from 41% in 2013, and over half believe that foreign businesses are being increasingly targeted.[iii]
There is a lot of anxiety and pessimism on the part of foreign companies operating in China right now, due to increased government scrutiny and investigations zeroing in on such business activity.[iv] Government officials and bodies, such as the National Development and Reform Commission (NDRC) and the State Administration for Industry and Commerce, seem to be concerned that foreign businesses are taking advantage of China’s massive economy, labour force, and resources while not playing by the rules of the game that constrain domestic businesses through their “monopolistic” behaviour.[v] They have recently been inclined to enforce China’s 2008 anti-monopoly law on foreign firms more strictly, as seen by the increase in fines and offences reported.[vi]
Significance:
The alleged targeting of foreign businesses in China that has created a more hostile environment towards foreign investment has been wholly denied by government leaders including President Xi Jinping and Premier Li Keqiang. A statement has been recently released insisting upon China’s welcoming demeanour towards foreign-owned enterprises operating in China, so long as they work fairly and on a level playing field with domestic firms.[vii] Keqiang has ensured foreign investors of China’s new commitment to liberalization and transparent regulatory procedures, discarding all claims of hostility towards foreign firms through its recent regulatory investigations.
China’s commitment to equality between all businesses can be seen with the recent creation of the ‘Shanghai Pilot Free Trade Zone’ – providing reforms aimed at creating a hospitable environment for foreign investment.[viii] Deregulation of company operations within the Free Trade Zone may be indicative of a larger shift towards trade and investment liberalization and reduced red tape in China’s government policies. The creation of such a Free Trade Zone has been viewed as the first step to spark broader liberalization outside of the Shanghai zone.
Over the past few decades, China has developed and expanded - now having its own domestic businesses and corporations, and it does not need to solely rely on foreign investment anymore. The cracking down on foreign businesses may seem to be an increase in protectionism on the part of the Chinese government, but as the leadership has stated, is only intended to create a level playing field for all. Once this level playing field is created, it may only be a matter of time for the Shanghai Free Trade Zone ideals to spread nationally and benefit everyone.
